Global Partnerships

Money is Not Wealth: Cryptos vs. Fiats!

By Hazel Henderson*

JACKSONVILLE, Florida (IDN) – After a few drinks, most bankers, economists and investors will admit that money is not wealth. Like inches and centimetres, money is a metric, and it used for tracking real wealth: human ingenuity and technological productivity interacting with natural resources and biodiversity undergirding all human societies along with the daily free photons from our Sun.

So brainwashed are we by the false money meme of “money as wealth” that whenever anyone proposes needed infrastructure maintenance, better schools and healthcare or any public goods, we are intimidated by some defunct economist who says “Where’s the money coming from?” They ought to know better, since, of course money is not scarce, it is just information.

Since the 2008 global financial meltdown and bailouts, trust is disappearing: in banks, stock markets, corporations, governments, religious institutions, experts, academia, political parties’ rhetoric and even the Internet and social media. This mistrust has fuelled global populists across the political spectrum, with ubiquitous signs at their rallies, “Where’s MY Bailout?”

We see the rise of crypto currencies becoming bubbles, as many seek alternative stores of value and mediums of exchange they hope will prove more trustworthy than the fiat currencies of central banks: dollars, yen, euros, pounds or pesos, backed only by their governments’ promises.

Trust is a precious commodity which undergirds all humanity’s markets, trading and exchange. Trust does not scale easily, abiding in face-to-face, handshake interactions in humanly-scaled communities, based on common agreements, shared infrastructure, resources and culture. Trust does not reside in packages of software, apps, Artificial Intelligence, big data or social media platforms, as we learned in 2016.

So trust was sought in the blockchain platforms first developed by the mysterious computer expert Satoshi Nakamoto in 2009 for his bitcoin. Now, over 1000 blockchain-based start-up companies and blockchains underlie the over 1,500 crypto currencies traded on electronic exchanges, including Coinbase. These computer-based distributed ledger blockchains are designed to engender trust by allowing person-to-person ability to verify each transaction or contract with a permanent record open to all.

Crypto promoters aspire to create global-level trust in the value of crypto currencies due to this transparency and their protocols limiting finite amounts to be issued in order to create artificial scarcity. This vision is sullied by the many cases of criminality, hacking, stealing, frauds and other shenanigans.

Nevertheless, faith and trust in these cryptos remains strong, since proponents say central banks also manipulate their fiats – which is true! We see fiat money being printed on TV shows! Yet fake visuals of cryptos, such as the shiny golden-coloured coins are also shown with news about bitcoin. This is a “bit-con” since bitcoin is a digital algorithm, a string of computer code which is unlikely to become a ubiquitous medium of exchange or a store of value.

Still, the allure to libertarians, hackers and speculators is that cryptos exist with no middleman, for peer-to-peer global private use with no governments, no banks or financial intermediaries and few outside rules except those imposed by issuers. Millions of hackers worldwide soon began solving the ever more complex mathematical puzzles needed to claim their next block of newly minted bitcoin.

These “miners” now use some 30 terawatts annually of fossil-generated electricity, equivalent to the consumption of a country the size of Ireland, plus gobs of computer power. They are now even affecting the Earth’s climate!

The loss of trust in fiat dollars, pounds, yen, euros and pesos we always use to pay each other cannot be replaced by cryptos – in spite of the current hype, as traditional financial markets now trade bitcoin futures and ETFs concocted by eager Wall Street players.

Nations including Russia, North Korea and Venezuela – under international sanctions for violating norms – are now issuing their own cryptos to escape financial controls set by governments for fiat currency transactions. How will this war between governments and libertarian hackers’ cryptos versus fiats work out?

Clearly, trust in all forms of money is fading. Today, people barter more goods and services on electronic platforms, swap and match, often directly without any use of currencies on platforms like Freecycle, and for everything from baby-sitting, sharing garden tools, spare rooms, vacation homes to finding their true love matches!

The familiar fiat currencies we still spend our lives earning, investing and saving for our retirement are losing their dominance in our lives and with that their role as a promised store of value. For example, few fiat currencies remain stable, as we see on FOREX trading screens daily. Even the US dollar has lost about 80 percent of its value over the past 30 years – due to inflation, budget deficits, interest payments to bond-holders on the US national debt, which recent tax cuts may increase by another 1.5 trillion dollars.

Most US and European citizens register disbelief when they learn that all their national money in circulation is created out of thin air by private banks when they create loans and is therefore only backed by other peoples’ debts, not by gold or any other commodity of value! Governments in Britain, the United States and most countries gave their sovereign power to coin their own national money away to their private banks and allowed them to charge interest on their loans as well, as Ellen Brown explains in Web of Debt(2010).

A US TV special entitled ‘The Money Fix’ details on how this happened in the United States with founding of the Federal Reserve in 1913 and the rise of local currencies, barter and credit circles. Governments’ policies became ever more erratic, swinging between obsolete textbook policy prescriptions: either “stimulation” (quantitative easing QE, i.e. money-printing, tax cuts, lowering interest rates, buying dud mortgage-backed securities) or “austerity” (cutting safety nets, education, healthcare, public services and selling off public assets) while continuing to bail out too-big-to-fail firms without prosecuting their reckless executives. Ethical Markets dissects such obsolete economic policies and offers more realistic alternatives.

Today, failing policy levers are being bypassed by the rise of cryptos, crowdfunding, peer-to-peer lending, electronic barter and information-based direct trading described in ‘FINTECH: Good and Bad News for Sustainable Finance’. They reveal the stunning truth: money is not wealth and, worse, it is no longer a reliable store of value! All those dollars we pinched to save for our retirement are losing their value until we use them to buy something useful, and shift our investing from obsolete, polluting, unsustainable corporations into trustworthy, sustainable, well-managed and transparent enterprises so we can monitor their performance and social impacts ourselves.

As the shock of this reality sets in, it reveals how most financial market players try to make money out of money, trading stocks with each other which are tradable contracts issued by big companies as explained by law professor Lynn Stout in her 2012 book, The Shareholder Value Myth (2012).

The latest Wall Street bubbles are index-based stocks and ETFs, reaching additional levels of abstraction. These truths are unravelled in Creating Alternative Futures (1978, 1996) and The Politics of the Solar Age (1981, 1986) where the essential unpaid tasks underpinning the cash-based sectors measured in GDP and incomes of mostly male “breadwinners” are described.

Textbooks designated their wives to perform all the work of maintaining households, raising the next generation, caring for elders, volunteering in community service – all unpaid. Economic textbooks described all this vital productive work I have called the “Love Economy” as “non-economic”!

Feminists emerged worldwide to insist this work be recorded and paid, such as Marilyn Waring in If Women Counted (1990); lawyer Riane Eisler’s Caring Economy campaign and Kate Raworth in Doughnut Economics (2017). I documented how thousands of communities around the world starved by their central governments of fiat currencies by austerity programmes, simply created their own local currencies, like the famous "Berkshares” issued by the Schumacher Society and circulated, even by local banks in Great Barrington, Massachusetts.

These townsfolk realised that using their own local currencies and credit could clear their local markets and employ their people meeting local needs. They taught a key lesson: money cannot be a store of value – it must circulate in the community in order to meet needs and create jobs and prosperity. To assure these currencies were not saved but spent, they all carried expiration dates and required stamps to re-validate them regularly affixed until they finally expired.

So this myth of money as a store of value is now threadbare.

Electronic platforms open up new possibilities for direct barter, with all the fintech exchanges now disrupting traditional finance and banking. These innovations offer hope that both cryptos and fiats may eventually be properly managed and regulated in the service of decentralised prosperity and focus on the new model: the UN’s Sustainable Development Goals (SDGs) adopted by 193 countries.

Accountants are renovating their models for information-based economies where services account for some 80 percent of production: from unpaid voluntary work to intellectual property, RD, design, brands, networks, “infostructure” (broadband, internet) and institutions, described in Capitalism Without Capital (2018).

The International Integrated Reporting System (IIRC) models six forms of capital: finance, built facilities, intellectual, social, human and natural capitals, which then measure the extent to which companies and governments enhance or degrade all six forms. This accounting revolution finally discloses and internalises all those “externalities” into companies’ balance sheets and provides full spectrum accounting – beyond money as the single metric. Honest money: currencies fully backed 100 percent, for example by kilowatt hours of renewable electricity, productive assets and services, can continue to be useful as mediums of exchange. Money is not wealth!

*The writer is CEO of Ethical Markets Media and author of 'Mapping the Global Transition to the Solar Age' and other books available in 800 libraries worldwide in many languages. This article is a revised version of an article that first appeared in Other News, established by Roberto Savio, former Inter Press Service (IPS) Director-General and founder. [IDN-InDepthNews – 18 January 2018]